Flexible Spending Accounts: Use the Money Before You Lose It

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Dan Caplinger is an attorney and financial planner covering retirement, ETFs, personal finance, and general investing for the Motley Fool. With nearly 20 years of diverse experience as a tax and estate planning lawyer, trust administrator, personal financial advisor, and independent consultant, Dan has developed a healthy skepticism of the mainstream financial industry and aims to make complex legal and financial concepts easier for his readers to understand. Dan has worked with the Motley Fool since 2006 as a retirement, tax, and investing expert with a focus on introducing new investors to the opportunities of smart financial planning.

Flexible spending accounts are a great way to save on your tax bill by using pretax money to cover medical expenses. But every December, like clockwork, many workers find themselves with leftover flex money. And because of the "use it or lose it" nature of flex accounts, they have to figure out how to can spend that money -- quick -- before their employer takes it away for good.

Don't wait until next month. Let DailyFinance help you figure out how to avoid losing that money now.

What's Eligible

The IRS has a helpful publication that lists what expenses are eligible and ineligible in a huge number of categories. In general, you can use flex money to pay for things that qualify as deductible medical expenses.

So, doctors' visits, hospital stays, and dental treatments are clearly eligible, as are prescription drugs. Eye exams and glasses or contacts are also popular items to drain flexible spending accounts. Because they can be pricey, many stores that sell eyeglasses run December specials to encourage people with leftover flex money to upgrade their eyewear.

For other expenses, though, it pays to take a close look at the rules.

What's Not

Certain expenses that many people would associate with health and wellness -- including nutritional supplements, gym memberships, and weight-loss programs -- generally are not eligible for flexible spending account reimbursement. Cosmetic surgery and hair transplants might make you feel better, but they don't qualify. However, acupuncture and chiropractic treatments do. And in case you were hoping to count medical costs for your pets, think again. Veterinary fees don't qualify.

Until a couple of years ago, you were also allowed to use flex money to pay for non-prescription medicines. But a change to the rules keeps you from doing so now; you'll need a doctor's prescription to get reimbursed for any non-prescription drug other than insulin.

So before you go out and spend a bunch of money, be sure to check the list and make sure you'll be able to use your flexible spending account to get reimbursed. Shop wisely, and this could be one of those rare times when the old advertising line will be accurate: The more you spend, the more you'll save.